Bitcoin’s roller-coaster ride shows why people should be cautious before investing in cryptocurrency – CNBC

Bitcoin’s roller-coaster ride shows why people should be cautious before investing in cryptocurrency – CNBC

An illustration of bitcoin on Euro banknotes.

Nicolas Economou | NurPhoto via Getty Images

The extreme movements up and down are relatively common for bitcoin and are expected to continue.

“The only thing I can expect for sure is volatility,” said David Yermack, a professor of finance at New York University Stern School of Business. “From day one, this has been a risky investment for people.”

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Bitcoin has seen both astronomical growth over the last decade and major selloffs at various points in between. Although many bulls point to its past performance as a sign that the cryptocurrency will continue to surge in the future, that might not happen, according to Yermack.

“It’s a purely speculative asset,” he said, adding that while bitcoin has grown in popularity, it’s still not considered a mainstream investment, meaning that many have little information about the asset.

“You should never invest in anything that you don’t understand,” said Yermack.

Only invest what you’re willing to lose

Financial experts generally advise that people looking to invest in bitcoin allocate a small amount of their portfolio that they’d be okay with losing entirely to the asset. The U.K.’s Financial Conduct Authority just issued a similar warning.

“People should only invest really what
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